If ever you needed proof that companies are increasingly viewing overseas markets as vital to overall company growth and profitability, the Ad Age Global Marketer’s survey should give you some idea of the importance of global markets.

The survey showed that the Top 100 global advertisers spent almost two-thirds (62%) of their measured-media budgets outside the U.S. last year, with much of the overseas spend going to China.  Of the 44 U.S.-based companies in the Global 100, a quarter relies so heavily on international sales that they allocate more than half their ad spend abroad.

Coca-Cola Co., for example, allocates just 16.5% of its $2.67 billion measured-media spending to the U.S. market but spends nearly three times that amount in Europe. Three-quarters of Coca-Cola’s sales come from outside the United States.

Procter & Gamble Co., which overtook Unilever in 2002 to become the world’s biggest advertiser, devotes two-thirds of its $9.73 billion measured-media spending to international markets, just slightly ahead of the 61% of P&G revenue that is generated from outside the U.S. P&G is the biggest advertiser in all regions except Latin America and Africa (where Unilever takes the top spot).

The biggest marketers are investing ad dollars wherever they can find revenue or potential for growth in a tough global economy – and increasingly, that’s deemed to be China. 39 of the Global 100 had measured-media spending in China last year, with five – Yum Brands, Pernod Ricard, Avon Products, Colgate-Palmolive Co. and P&G – already investing more than 10% of their budgets there.  Yum Brands, the parent company of KFC and Pizza Hut, spends 20% of its $1.41 billion worldwide measured ad spending in China and, in 2008, generated 31% of its global revenue from the country, with sales surging 36%.

Overall, China represents 3.4% of total advertising spend for the Global 100, with P&G emerging as China’s biggest advertiser at about $1.1 billion.

The Global 100 last year spent slightly more in Europe ($46.3 billion or 39% of their total) than in the U.S. ($44.4 billion, or 38%).  Yet, the United States seems to have appeal for a number of European and Japanese marketers. Six of the 56 non-U.S. Global 100 companies (of whom four are European pharmaceutical manufacturers, subject to more stringent European advertising regulations) spent more than half their media budgets in the U.S.  Unsurprisingly, U.S. pharmaceutical companies concentrate the bulk of their own ad spending in the U.S.

Overall, total measured ad spending for the Global 100 companies rose 3.1% to $117.9 billion in 2008, despite a 3.7% drop in the Global 100’s U.S. spending.

Over the years, B2B International has worked for several of the large global courier transportation companies.  It was, therefore, with interest that we read the following article in Media recently, which discusses the changes that have occurred in this sector within China in the last year or so:

SECTOR INSIGHT… ‘BIG FOUR’ EYE GROWTH IN CHINA DELIVERY MARKET

UPS, DHL, FedEx and TNT have been cutting Chinese adspend despite ambitious plans to expand.

It was hard to miss UPS at last year’s Beijing Olympics. Life-size cut-outs of brown-garbed UPS deliverymen sequipment from improbably small packages, while the slogan read ‘Nothing is impossible - UPS delivered everything and anything to the Beijing Olympics’.

As the event’s sponsor and official courier service, UPS used every opportunity to display its logo. Nielsen data shows UPS spent Rmb 404 million (US$58.6 million), or 61.4 per cent of the Rmb 655 million that courier services spent on TV and print last year. Its global rivals DHL and FedEx spent Rmb 128.5 million and Rmb 90.7 million, respectively, while TNT was, in terms of adspend, nowhere in sight. Besieged incumbent EMS, a subsidiary of China Post and officially named China Courier Service Corporation, spent a more modest Rmb 24.3 million.

A year later, things have changed. UPS has cut back so severely that it is no longer the top advertiser. During the first eight months of 2009, UPS spent just Rmb 74 million. The sector’s overall ad investment totalled only Rmb 253.8 million in those months.

One might suspect a post-Olympics hangover or the global economic downturn, especially since the latter resulted in a sharp drop in air cargo leaving China for the US and Europe.

Both certainly have influenced promotion budgets, but the decline in adspend actually began before the Olympics or the September collapse of Lehman Brothers. DHL slashed its budget from Rmb 367.2 million in 2007 to Rmb 128.5 million in 2008, and in September of that year announced a pitch involving no TV work. FedEx, which spent Rmb 260.6 million in 2007, cut its budget to Rmb 90.7 million in 2008, though interestingly FedEx is spending again this year.

The lull in advertising does not signal a change of heart for DHL, UPS, FedEx and TNT, all in their third decade in China.

China’s first courier express was EMS, founded in 1980 and in service by 1984, relying on the Universal Postal Union for overseas delivery. DHL, UPS, FedEx and TNT arrived in the mid-80s, establishing joint ventures as required by law, all of them choosing the largest logistics player, Sinotrans Group.

Today the ‘big four’ dominate the international express business. By 2006, EMS had seen its share shrink to around 20 per cent, while DHL claimed 30 to 34 per cent, FedEx 19 to 21 per cent, UPS 18 to 20 per cent and TNT seven to eight per cent, according to a 2007 study by Booz Allen Hamilton.

DHL has retained its partnership with Sinotrans until today, while UPS, FedEx and TNT realigned themselves with local players, through acquisition or partnerships, to build their domestic networks - a new opportunity since China’s entry into the World Trade Organisation in December 2001.

That is where the future lies. Domestic coverage of China is still limited to the coastal tier-one cities, but it is rapidly expanding inland, and the big four are pouring billions of dollars into the construction of logistics hubs and ground fleets. Already, the domestic courier, express and parcel (CEP) business is twice the size of the international business.

This is likely to lead to renewed marketing activity. UPS recently hired Ogilvy & Mather to handle its global ad account, with China earmarked as a key Asian market. What’s more, Malcolm Sullivan, VP marketing for Asia-Pacific at FedEx, says that the company will resume spending on ads to back its investment in lower tiers. “As the economy expands beyond the coastal areas, we are investing in infrastructure in tier-two, three and four cities,” he says. “Our marketing communications will follow, and potential users will see more advertising in these areas.”

Sullivan adds that FedEx’s activity extends beyond advertising. It sponsors the China Badminton Team, and renewed its contract in August. He adds: “By activating this sponsorship through events, we extend our brand presence and broaden our community relations in the country.”

To find out more about the market research work we do in the transport sector, please go to:

http://b2binternational.com/China/b2bsectors/transport.php

An article that appeared recently in AdAgeChina - 3 Golden Rules of Brand Management in China – caught our eye.  In it, Tom Doctoroff of JWT offers some advice for global brands looking to make it big in China.

Since we conduct a lot of branding research within China (as indeed we do across the rest of the world), we thought we would reproduced Tom’s article today on our blog. Of course, if you wish to find out more about how to establish yourself in China, why not read our white paper Marketing and Selling to Chinese Businesses, or email beijing@b2binternational.com for more information:   

To maximize relevance and trigger loyalty that results in a sustainable price premium, global brands need to be aligned with China’s cultural imperatives and operational realities.

At the risk of oversimplifying, here are three “golden rules” marketers must be sensitive to before landing in the mainland.

1. Maximize public consumption to justify price premiums.

In China, a Confucian society torn between stifling regimentation and ambition, consumers regard brands as tools for success. “Face,” the primary currency of upward mobility, is rooted in status projection. This is why brands that are consumed in public are able to command huge price premiums relative to goods used in private or within the house.

All leading mobile phone brands, for example, are international. Even in tier-five cities and the rural fringe, Nokia commands a 40% market share, despite significantly higher prices than local competitors.

Sony’s Handycam, a product brandished outside the home, is a brand leader. However, Sony television sets, although aspirational, struggle to be more than a niche product.The leading household appliance brands are, without exception, cheaply-priced domestic brands such as Haier,TCL and Changhong.

The “public display” imperative leads to fundamental positioning differences. As a general rule, benefits should be “externalized,” not “internalized.” Bath gels should not promote “sensorial indulgence” in the shower. They should “stimulate” the user to begin the day with a kick, ready to conquer the world. Beauty products must help a woman “move forward” and enhance her ability to “open doors” professionally or “control” her man. Mass market beauty brands should still help lower-income women be “admired” as a great mom or adored wife. Even beer must deliver something. In Western countries, “letting good times roll” is enough. In China, pilsner must bring people together, reinforce trust and optimize opportunity for mutual (financial) gain.

Automobiles, now a middle-class “must buy,” should make a statement about a man on the way up. BMW, a winner, elegantly fuses its global “ultimate driving machine” with a Chinese declaration of ambition.

DeBeers achieved 80% penetration of engagement rings by morphing universal passion inherent in “A Diamond is Forever” into Confucian “proof” that “commitment will last a lifetime.”

The importance of public display is also critical in shaping business models. To conform to Chinese tastes, Starbucks, for example, broadened the sandwich menu, identified prime site-to-be-seen real estate, and made stores bigger. Starbucks has established itself as a public place where professional tribes gather to proclaim affiliation with the New Generation Elite. Likewise, both Pizza Hut and Haagen-Dazs have built mega-franchises rooted in out-of-home consumption.

2. Simplify communications and benefits to enhance comprehension.

Chinese are overwhelmed (yet excited) by the explosion of brands. Twenty years ago, the public phone was the only way to make a telephone call; today, there are over 300 different mobile devices,from $30 basic models to state-of-the-art smart phones. Making matters worse, China’s media landscape is cluttered. Television screens, most owned by Focus Media, are ubiquitous – in taxis,elevators, restaurants, building tops, locker rooms and bathroom stalls.

Complicated messages, therefore, are not easily digested, even amongst the most brand-literate. Consistent messages must be conveyed directly. Advertising must be ruthlessly single minded. Visualize the key benefit, leverage demos as creative ideas, slice of life formats revolving around  torture tests and so on. Select celebrities, usually Chinese, whose star attributes reinforce a core brand proposition.

For simplicity mandate, heavy mass media is essential. China’s untamed landscape requires forming brands from scratch; television fits this bill. Digital is increasingly critical to deepening engagement and loyalty but mass media will remain center-of-the-plate for years.

3. Extend brands downwards to generate scale, affordability and margin.

Multinational brands must need to profitable and have mass-market scale. Most multinational can charge a price premium because Chinese consumers prefer the reliability and “cool” of foreign   brands. The tough nut, however, is scale. Scale is critical in a reassurance-driven market such as China.

The only way to target a broad swathe of price-sensitive consumers is to extend premium-priced brands downwards across lower price tiers by reducing costs and simplifying benefits. At the same time, great care must be taken not to degrade quality perceptions, usually by advertising the most premium variants.

Colgate’s Total Oral Care, a premium toothpaste made largely of imported ingredients, costs   approximately 200% more than local brands and maintained a 3% share. Colgate Herbal and Colgate Strong, however, use cheaper local ingredients and are priced slightly higher than or at parity with local brands. The combined Colgate franchise controls a phenomenal 20% of the toothpaste market, one with hundreds of regional and national competitors. In recent years, Nestle and Procter & Gamble (with varying degrees of success) have adopted a similar strategy. So, too,   have higher involvement categories such as mobile phones.

The Chinese business battlefield is treacherous, rife with kamikaze commoditization. We have not covered issues such as avoiding censorship, in-store activation, product localization, the supremacy of the “single child” and safety issues. However, these three “golden rules” are essential to consider before finalizing a China strategy.

Media agency Carat, based in Shanghai, reports that China’s ad market will grow by 6.9% this year, far exceeding their earlier forecast of 4.6%.  While clearly good news in light of the difficult environment this year, 6.9% growth is actually the lowest increase in ad spending in the past decade.

In the article featured in AdAgeChina, Carat asserts that the rapid growth of satellite television stations is putting pressure on local and provincial stations to raise the quality of their programming.  With higher quality satellite programming come better ratings and increased brand awareness in second-, third- and fourth-tier markets (above and beyond the traditional tier one centers).

What’s more, there has been huge growth in digital outdoor media options, which is allowing two-way interaction in even the most traditional of media spaces, such as bus shelters or office elevator lobbies.

Digital developments, for example mobile search, social media or online gaming, are also reshaping how consumers engage with media.

But it hasn’t all been good news.  2009 has been a difficult year at times and the gloom surrounding the recession has meant many advertisers were unwilling to make long-term plans and commitments.  They have, of course, also been squeezing prices down in their drive for efficiency.  2010 is expected to be a better year, although we should not expect to see a complete and immediate change in tactics from advertisers.

Other challenges will need to be taken into consideration by marketers next year as well.  High-profile events, such as the 2010 World Expo which is taking place in Shanghai and the Asian Games being held in Guangzhou, will be inflationary and raise costs in these two cities, just as last year’s Olympic Games did in Beijing.

The regulatory environment is also set to change next year.  China’s State Administration of Radio, Film and Television has announced a whole host of new regulations which aim to limit the amount of airtime given to commercials, setting a maximum advertising allotment per hour, etc.  It is not yet known what impact these new restrictions will have on advertising rates.

To find out how our advertising market research can help you to monitor and track the effectiveness of an advertising campaign, please visit:

http://b2binternational.com/China/research/cn/advertising.php

China’s advertising market is defying the global downturn in advertising, with a rise in expenditure of 5.8% year on year to Yn148bn (£13bn) in the first four months of this year, according to CTR Media Intelligence, a subsidiary of the state broadcaster China Central Television.  However, the industry is cautious about predicting future growth.

Sources: CBBC, Xinhua, Financial Times, Wall Street Journal, FCO Country Updates and other news sources. 

A recent article appearing on AdAgeChina.com reported that the China Advertising Association has introduced new guidelines for 2009 to consolidate internet media advertising standards.  It is hoped that these new measures will make it easier for digital media companies to sell advertising space and reduce the associated production costs.

Digital media in all its various forms has seen rapid growth in China over recent years.  China, with 290 million internet users (more than 80% of whom have broadband connections) in November 2008, is the world’s largest internet market, and the number of new internet users grows by nearly 240,000 per day.

It is estimated that up to $2.3 billion was spent on digital media in 2008, with some experts predicting this amount could grow by 35% in 2009.  Yet Chinese marketers spend only a fraction of their advertising budgets in online media compared to marketers in the world’s second largest internet market, the United States.

Internet advertising in China has, until now, been a complicated business.  The new guidelines have reduced some 170,000 different sizes of internet ads to just 199 standard formats.  It is hoped that this figure, which applies to more than 80% of China’s websites, can soon be cut further to help manage what has become a fragmented digital media industry.

With fewer size options and format permutations for online advertising, more marketers should be willing and able to invest in online advertising in the future.  Online advertising has witnessed huge growth in many other countries around the world, and it increasingly forms a vital and integral part of any company’s marketing mix.

Two news articles about the Chinese automotive industry have been circulating this past week.  First is the news that in January, China overtook the United States in monthly vehicle sales for the first time, according to figures from the China Association of Automobile Manufacturers.

If the trend continues throughout the rest of 2009, China will become the world’s largest vehicle market, having already overtaken Japan in 2006 to become the second-biggest auto market.

While car sales have slowed in China over recent months, the slowdown has been even greater in America, and car manufacturers are all looking at new ways to encourage sales - new advertising campaigns, sales promotions and pricing discounts, improved customer service and warranties, etc.

On the back of this comes news that China’s largest independent car manufacturer, Chery, which is known for its small cars, is hoping to introduce a Chinese luxury car line.

Still in the early stages, neither the launch date nor the name of the new luxury brand has been announced.

In the past, Chery has been criticized by some for developing more projects than it can manage successfully.  However, its new company philosophy is to concentrate more resources on a smaller number of tasks.

By announcing its intentions to enter a new market, we assume that the company intends to focus considerable efforts on serving this new segment, and we presume that it has carried out a thorough market assessment study to establish that there is an opportunity for its specific new offering.